Has the BHP Petroleum acquisition been positive for the Woodside share price?

Sometimes big deals don't work out. How is the mega oil merger going?

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Key points

  • Woodside merged with BHP’s oil and gas business this year 
  • The synergies are expected to amount to approximately US$400 million
  • Woodside has significantly outperformed the ASX 200 since announcing the deal

The Woodside Energy Group Ltd (ASX: WDS) share price has been volatile over the past 12 months. Amid the rollercoaster of the ASX share market in the last few months, was it a good move to acquire the BHP Group Ltd (ASX: BHP) oil and gas business?

For readers who don't know, Woodside is the largest oil and gas company on the ASX. It became a lot larger after merging with the BHP petroleum division and issuing BHP shareholders with new Woodside shares.

The merger

When it announced the acquisition back in November 2021, Woodside boasted that the combined business would create a global top 10 independent energy company by production.

It said that the combination will lead to a business that has a high margin oil portfolio, long-life LNG assets, and the financial resilience to help supply the energy needed for global growth and development over the energy transition.

Greater scale is one obvious benefit. But, Woodside has also estimated that there will be synergies of more than US$400 million per annum from optimising corporate processes and systems, leveraging combined capabilities, and improving capital efficiency on future growth projects and exploration.

How has the Woodside share price performed?

The merger was completed at the start of June 2022. Since then, the Woodside share price has risen by around 5%.

Over the same time period, the S&P/ASX 200 Index (ASX: XJO) share price has dropped more than 3%. In other words, Woodside shares have outperformed the ASX 200 by almost 10% since the merger happened. That's quite a bit of outperformance over a relatively short period of time.

However, the merger wasn't a surprise in June 2022. Investors have known about it since November 2021. Since the announcement of the merger, the Woodside share price has risen by 44%. That compares to a 5.5% drop for the ASX 200. Woodside shares have outperformed by around 50%.

However, it's hard to say how much is down to Woodside's merger with the BHP division and how much is down to the huge jump in energy prices after the Russian invasion of Ukraine.

But, don't forget that Woodside will get a few hundred million dollars of synergies. It's not just about the revenue boost.

Woodside CEO Meg O'Neill said:

The merger delivers a diverse portfolio of quality operating assets, plus a suite of growth opportunities across oil, gas and new energy that promises ongoing value for our shareholders.

We believe that completion of the merger will enable Woodside to play a more significant role in the energy transition that is imperative as we respond to climate change while ensuring reliable and affordable supplies of energy to a growing and aspirational global population.

Woodside dividend expectations

According to estimates on CMC Markets, Woodside is expected to pay a grossed-up dividend yield of 16.2% in FY22.

Woodside will reveal its full-year results for FY22 on 30 August.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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